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Three Words: Negotiate, Negotiate, And Renegotiate

Many IT managers now enjoy extra leverage with vendors--leverage that they haven't seen for more than a decade.
'Tis the season for giving, receiving--and renegotiating IT vendor contracts. Just ask Marty Labreque, head of procurement for National City, who says, "We expect to have two significant transactions within the last 10 days of this year--and I can't even identify them yet." Labreque knows that quite a few vendors aren't making their sales goals. "They're at risk of not meeting analyst expectations for revenue, which means their stock price will get hammered again," he says.

The result is that many IT managers now enjoy extra leverage with vendors--leverage that they haven't seen for more than a decade. But they shouldn't let dizzying price cuts distract them from getting the best deals. One of the biggest IT-procurement mistakes is when managers sign vendors' standard agreements without considering factors other than price. Demand better service level agreements, says Labreque: "Vendors are now more willing to provide cost reductions if they don't meet service levels." But while vendors are more flexible today about SLAs, companies should choose their demands carefully. "If the vendor is relatively small or not well capitalized, we don't want to make penalties so onerous that they get pushed out of business by us," Labreque. He also urges companies to check the warranty agreement--an important but frequently overlooked part of the contract.

When it comes to getting a better deal, National City isn't reviewing all of its IT contracts. Instead, Labreque and his team of 17 employees are focusing on high-cost mainframe software vendors. Sometimes that means renegotiation; other times, it entails switching vendors. "We recently displaced a mainframe software vendor that we'd had for 15 years," he says. "That's one area of the market that's been overpriced for years, and has gotten away with it."

How much success are you having with vendor negotiations? Share your experience in the Talk Shop discussion forum.